Fitch Rates Western Gas' Senior Unsecured Notes Reopening 'BBB-'

October 06, 2016 01:35 PM Eastern Daylight Time

NEW YORK--(BUSINESS WIRE)--Fitch Ratings rates Western Gas Partners, LP's (NYSE: WES) senior
unsecured notes due 2044 'BBB-'. The notes are being offered under the
company's indenture for $400 million of notes due 2044 and will be fully
fungible with the existing 2044 notes. WES intends to use the proceeds
to repay a portion of amounts currently outstanding under the revolving
credit facility and to fund capital expenditures.

Ratings for WES reflect the relative credit strength at sponsor Anadarko
Petroleum Corp. (NYSE: APC; 'BBB'/Outlook Negative), as well as good
visibility on throughput volumes and associated cash flows related to
key WES gathering systems. Downside risks for WES are related to changes
to upstream budgets and subsequent production volumes in WES areas of
operation rather than from commodity price fluctuations (i.e. volumetric
rather than commodity price), although sustained lower commodity prices
are likely to have an impact on upstream producer's drilling activity
levels and subsequent need for gathering & processing services.

There is currently no explicit rating notching between WES and APC.
Fitch believes APC's rating profile has more potential for volatility
given significant commodity price exposure and that potential rating
changes at WES would be more muted given the current contract profile
and counterparty risk. However, in the event of a significant ratings
change at APC, Fitch would closely examine the expected volumetric and
cash flow exposure to APC to determine the subsequent credit profile at
WES.

KEY RATING DRIVERS

RELATIONSHIP WITH ANADARKO

Fitch believes APC's significant direct and indirect interests in WES
and WGP create a strong economic incentive for APC to effectively manage
WES from a growth, cash flow, and capital structure perspective. As of
June 30, 2016, WGP ownership interests in WES consisted of a 30% limited
partner (LP) interest, the 1.5% general partner (GP) interest, and 100%
of WES incentive distribution rights. Subsidiaries of APC held units
representing an 87.3% LP interest in WGP, as well as an 8.4% LP interest
in WES.

APC's 2016 U.S. onshore capital allocation to the Wattenberg and
Delaware should benefit WES via allocation of APC volumes. APC has
minimum throughput and production dedication arrangements with WES on
specific systems, and the relationship with APC provides visibility on
the level of throughput volumes on WES gathering and processing systems
in the Wattenberg and Delaware basins. However, U.S. onshore volume
growth could remain under pressure in a sustained oil & natural gas
price stress scenario, and volumetric risk remains an area of concern
for gathering & processing companies, including WES. Additionally, WES
and APC have swap agreements that mitigate WES commodity price exposure
associated with percent-of-proceeds and keep-whole volumes.

FEE-BASED CONTRACT STRUCTURE

WES has approximately 98% of gross margin tied to fee-based &
fixed-price arrangements, which provide for stability in earnings and
cash flow measures. This helps to minimize margin volatility and provide
cash flow and earnings stability. Volumetric risk remains a concern, as
lower throughput can be driven by reduced drilling activity by
producers. However, in the near term, WES is favorably positioned to the
extent that production in its major operating basins continues to remain
relatively stable and APC continues to develop its U.S. onshore resource
base. Additionally, a substantial portion of volumes are insulated by
WES' contract portfolio. In 2015, 71% of throughput volumes were linked
to cost of service or demand charge contracts.

CREDIT NEUTRAL FUNDING OF GROWTH PROJECTS

As calculated by Fitch, debt/EBITDA was 4.0x for the last 12 months
ending June 30, 2016, up from 3.7x as of Dec. 31, 2015. Fitch assumes
that management will continue to target run-rate leverage at or below
4.0x. Fitch believes that distribution growth rates could come under
pressure over the next few years as upstream producers reduce capex
budgets, but believes that WES will continue to manage distribution
growth as needed to target 1.1x distribution coverage.

--Adoption of a growth funding strategy which does not include a
significant equity component.

ADEQUATE LIQUIDITY POSITION

As of June 30, 2016, WES had $158 million in cash and $655 million
available on the $1.2 billion unsecured revolving credit facility,
leading to total liquidity of $813 million. Fitch expects that liquidity
will remain adequate over the near term given recent liquidity enhancing
measures, including the April 2016 issuance of Series A Preferred units,
issuance of senior notes due 2026 and 2044 used to term out revolver
borrowings. WES also has relatively low committed capital spending
requirements.

Fitch currently rates WES as follows:

Western Gas Partners, LP

--Long-Term IDR 'BBB-';

--Senior unsecured notes 'BBB-'.

Date of Relevant Rating Committee: March 18, 2016

Summary of Financial Statement Adjustments

Fitch has made no material financial statement adjustments that are not
disclosed within the company's public filings.

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